UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________ 

FORM 10-Q

______________________________________________ 

Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2018

Commission File Number: 000-50245

______________________________________________ 

HOPE BANCORP, INC.

(Exact name of registrant as specified in its charter)

______________________________________________ 

Delaware	95-4849715
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3200 Wilshire Boulevard, Suite 1400, Los Angeles, California	90010
(Address of principal executive offices)	(Zip Code)

(213) 639-1700

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if change since last report)

______________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o   No  x

As of October 31, 2018, there were 128,777,134 outstanding shares of Hope Bancorp, Inc. common stock, $0.001 par value per share.

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS
	Consolidated Statements of Financial Condition - September 30, 2018 (Unaudited) and December 31, 2017	4
	Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2018 and 2017	6
	Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 2018 and 2017	7
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - Nine Months Ended September 30, 2018 and 2017	8
	Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2018 and 2017	9
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	59
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	87
Item 4.	CONTROLS AND PROCEDURES	88
PART II - OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	89
Item 1A.	RISK FACTORS	89
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	90
Item 3.	DEFAULTS UPON SENIOR SECURITIES	90
Item 4.	MINE SAFETY DISCLOSURES	90
Item 5.	OTHER INFORMATION	90
Item 6.	EXHIBITS	90
INDEX TO EXHIBITS		91
SIGNATURES		92

2

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, expectations regarding the business environment in which we operate, projections of future performance, perceived opportunities in the market, and statements regarding our business strategies, objectives and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “projects,” “forecasts,” “estimates” or similar expressions. With respect to any such forward-looking statements, the Company claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, trends, uncertainties, and factors that are beyond the Company’s control or ability to predict. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. The risks and uncertainties include: possible deterioration in economic conditions in our areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; and regulatory risks associated with current and future regulations. For additional information concerning these and other risk factors, see Part I, Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The Company does not undertake, and specifically disclaims any obligation, to update any forward looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

3

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

HOPE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	(Unaudited)
	September 30, 2018		December 31, 2017
ASSETS	(Dollars in thousands, except share data)
Cash and cash equivalents:
Cash and due from banks	$	172,572	$	185,527
Interest bearing cash in other banks	350,138		306,473
Total cash and cash equivalents	522,710		492,000
Interest bearing deposits in other financial institutions and other investments	80,316		53,366
Securities available for sale, at fair value	1,854,250		1,720,257
Loans held for sale, at the lower of cost or fair value	15,023		29,661
Loans receivable, net of allowance for loan losses of $90,629 and $84,541 at September 30, 2018 and December 31, 2017, respectively	11,836,553		11,018,034
Other real estate owned (“OREO”), net	8,981		10,787
Federal Home Loan Bank (“FHLB”) stock, at cost	25,927		29,776
Premises and equipment, net	55,178		56,714
Accrued interest receivable	33,338		29,979
Deferred tax assets, net	57,972		55,203
Customers’ liabilities on acceptances	1,259		1,691
Bank owned life insurance (“BOLI”)	76,081		74,915
Investments in affordable housing partnerships	95,506		81,009
Goodwill	464,450		464,450
Core deposit intangible assets, net	14,677		16,523
Servicing assets, net	24,354		24,710
Other assets	62,920		47,642
Total assets	$	15,229,495	$	14,206,717
(Continued)

4

HOPE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	(Unaudited)
	September 30, 2018			December 31, 2017
LIABILITIES AND STOCKHOLDERS’ EQUITY	(Dollars in thousands, except share data)
LIABILITIES:
Deposits:
Noninterest bearing	$	3,020,819		$	2,998,734
Interest bearing:
Money market and NOW accounts	3,247,420			3,332,703
Savings deposits	229,081			240,509
Time deposits	5,548,299			4,274,663
Total deposits	12,045,619			10,846,609
FHLB advances	836,637			1,157,693
Federal funds purchased	—			69,900
Convertible notes, net	193,332			—
Subordinated debentures	101,657			100,853
Accrued interest payable	31,717			15,961
Acceptances outstanding	1,259			1,691
Commitments to fund investments in affordable housing partnerships	57,701			38,467
Other liabilities	56,993			47,288
Total liabilities	13,324,915			12,278,462
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; authorized 150,000,000 shares at September 30, 2018 and December 31, 2017: issued and outstanding 135,639,799 and 130,074,103 shares, respectively, at September 30, 2018, and issued and outstanding 135,511,891 shares at December 31, 2017	136			136
Additional paid-in capital	1,422,685			1,405,014
Retained earnings	636,080			544,886
Treasury stock, at cost; 5,565,696 and 0 shares at September 30, 2018 and    December 31, 2017, respectively	(100,000		)	—
Accumulated other comprehensive loss, net	(54,321		)	(21,781		)
Total stockholders’ equity	1,904,580			1,928,255
Total liabilities and stockholders’ equity	$	15,229,495		$	14,206,717

See accompanying Notes to Consolidated Financial Statements (Unaudited)

5

HOPE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans	$	153,366		$	136,822		$	437,497		$	388,631
Interest on securities	11,957			9,540			32,957			26,394
Interest on federal funds sold and other investments	2,503			1,281			7,692			3,894
Total interest income	167,826			147,643			478,146			418,919
INTEREST EXPENSE:
Interest on deposits	37,022			20,376			92,481			53,001
Interest on FHLB advances	3,703			2,698			11,453			7,176
Interest on other borrowings and convertible notes	3,954			1,306			8,178			3,754
Total interest expense	44,679			24,380			112,112			63,931
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	123,147			123,263			366,034			354,988
PROVISION FOR LOAN LOSSES	7,300			5,400			12,100			13,760
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	115,847			117,863			353,934			341,228
NONINTEREST INCOME:
Service fees on deposit accounts	4,569			5,151			13,983			15,668
International service fees	1,220			1,107			3,452			3,334
Loan servicing fees, net	852			1,373			3,441			4,102
Wire transfer fees	1,227			1,287			3,684			3,816
Net gains on sales of SBA loans	2,331			3,631			9,261			10,148
Net gains on sales of other loans	477			847			2,104			1,619
Other income and fees	2,771			2,850			12,641			11,277
Total noninterest income	13,447			16,246			48,566			49,964
NONINTEREST EXPENSE:
Salaries and employee benefits	36,969			35,987			116,929			105,099
Occupancy	7,837			7,131			22,494			21,479
Furniture and equipment	3,710			3,642			11,454			10,611
Advertising and marketing	1,986			2,217			7,022			8,035
Data processing and communications	3,513			3,221			10,582			9,503
Professional fees	3,950			3,239			11,530			10,401
Investments in affordable housing partnerships expenses	3,357			2,803			8,600			8,019
FDIC assessments	1,788			1,262			5,166			3,276
Credit related expenses	658			(2,487		)	2,356			(491		)
OREO expense, net	(56		)	678			(115		)	2,863
Merger-related expenses	—			260			(7		)	1,769
Other	3,743			3,884			11,526			13,009
Total noninterest expense	67,455			61,837			207,537			193,573
INCOME BEFORE INCOME TAXES	61,839			72,272			194,963			197,619
INCOME TAX PROVISION	15,461			27,708			49,823			76,158
NET INCOME	$	46,378		$	44,564		$	145,140		$	121,461
EARNINGS PER COMMON SHARE
Basic	$	0.36		$	0.33		$	1.09		$	0.90
Diluted	$	0.36		$	0.33		$	1.09		$	0.90

See accompanying Notes to Consolidated Financial Statements (Unaudited)

6

HOPE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Net income	$	46,378		$	44,564		$	145,140		$	121,461
Other comprehensive (loss) income:
Change in unrealized net holding (losses) gains on securities available for sale	(13,113		)	(208		)	(47,013		)	7,741
Change in unrealized net holding (losses) gains on interest only strips	(1		)	(3		)	1			(44		)
Tax effect	3,915			89			14,191			(3,251		)
Other comprehensive (loss) income, net of tax	(9,199		)	(122		)	(32,821		)	4,446
Total comprehensive income	$	37,179		$	44,442		$	112,319		$	125,907

See accompanying Notes to Consolidated Financial Statements (Unaudited)

7

HOPE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
		Common stock				Additional paid-in capital		Retained earnings			Treasury stock			Accumulated other comprehensive loss, net			Total stockholders’ equity
		Shares		Amount
	(Dollars in thousands, except share data)
BALANCE, JANUARY 1, 2017		135,240,079		$	135	$	1,400,490	$	469,505		$	—		$	(14,657	)	$	1,855,473
Issuance of shares pursuant to various stock plans		227,097				1,278											1,278
Stock-based compensation						1,818											1,818
Cash dividends declared on common stock								(50,045		)							(50,045		)
Comprehensive income:
Net income								121,461									121,461
Other comprehensive income														4,446			4,446
BALANCE, SEPTEMBER 30, 2017		135,467,176		$	135	$	1,403,586	$	540,921		$	—		$	(10,211	)	$	1,934,431
BALANCE, JANUARY 1, 2018		135,511,891		$	136	$	1,405,014	$	544,886		$	—		$	(21,781	)	$	1,928,255
Reclassification of unrealized losses on equity investments to retained earnings - ASU 2016-01								(469		)				281			(188		)
Issuance of shares pursuant to various stock plans		127,908				466											466
Stock-based compensation						2,160											2,160
Cash dividends declared on common stock								(53,477		)							(53,477		)
Comprehensive income:
Net income								145,140									145,140
Other comprehensive loss														(32,821		)	(32,821		)
Repurchase of treasury stock		(5,565,696	)								(100,000		)				(100,000		)
Equity component of convertible notes, net of taxes						15,045											15,045
BALANCE, SEPTEMBER 30, 2018		130,074,103		$	136	$	1,422,685	$	636,080		$	(100,000	)	$	(54,321	)	$	1,904,580

See accompanying Notes to Consolidated Financial Statements (Unaudited)

8

HOPE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Nine Months Ended September 30,
	2018			2017
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	145,140		$	121,461
Adjustments to reconcile net income to net cash from operating activities:
Discount accretion, net of depreciation and amortization	(2,915		)	(9,270		)
Stock-based compensation expense	2,924			2,298
Provision for loan losses	12,100			13,760
Credit for unfunded loan commitments	(100		)	(2,358		)
Valuation adjustment of premises held for sale	—			1,084
Valuation adjustment of OREO	323			2,001
Net gains on sales of SBA and other loans	(11,365		)	(11,767		)
Earnings on BOLI	(1,166		)	(818		)
Net change in fair value of derivatives	(15		)	46
Net losses (gains) on sale and disposal of premises and equipment	38			(277		)
Net gains on sales of OREO	(358		)	(34		)
Net change in fair value of equity investments with readily determinable fair value	(1,901		)	—
Losses on investments in affordable housing partnership	8,347			7,766
Net change in deferred income taxes	4,863			891
Proceeds from sales of loans held for sale	258,231			221,821
Originations of loans held for sale	(229,871		)	(200,951		)
Originations of servicing assets	(5,489		)	(4,096		)
Net change in accrued interest receivable	(3,359		)	(2,265		)
Net change in other assets	(20,594		)	(592		)
Net change in accrued interest payable	15,756			2,877
Net change in other liabilities	9,805			(3,259		)
Net cash provided by operating activities	180,394			138,318
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits in other financial institutions and other investments	(9,887		)	(28,615		)
Redemption of interest bearing deposits in other financial institutions and other investments	13,795			19,102
Purchase of securities available for sale	(375,710		)	(504,831		)
Proceeds from matured, called, or paid-down securities available for sale	166,746			193,320
Proceeds from sales of other loans held for sale	6,814			417
Net change in loans receivable	(812,748		)	(407,767		)
Proceeds from sales of OREO	5,552			7,542
Purchase of FHLB stock	—			(7,223		)
Redemption of FHLB stock	3,849			761
Purchase of premises and equipment	(5,516		)	(10,271		)
Proceeds from sales and disposals of premises and equipment held for sale	—			3,267
Investments in affordable housing partnerships	(10,835		)	(8,476		)
Net cash used in investing activities	(1,017,940		)	(742,774		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	1,199,011			356,185
Proceeds from FHLB advances	—			815,000
Repayment of FHLB advances	(320,000		)	(550,000		)
Repayment of federal funds purchased	(69,900		)	—
Proceeds from convertible notes, net of issuance fees	212,920			—
Purchase of treasury stock	(100,000		)	—
Cash dividends paid on common stock	(53,477		)	(50,045		)
Taxes paid in net settlement of restricted stock	(764		)	—
Issuance of additional stock pursuant to various stock plans	466			1,278
Net cash provided by financing activities	868,256			572,418
NET CHANGE IN CASH AND CASH EQUIVALENTS	30,710			(32,038		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	492,000			437,334
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	522,710		$	405,296
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	94,778		$	66,416
Income taxes paid	$	44,153		$	85,384
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Transfer from loans receivable to OREO	$	3,340		$	7,173
Transfer from loans receivable to loans held for sale	$	6,680		$	429
Transfer from loans held for sale to loans receivable	$	1,566		$	1,829
Transfer from premises and equipment to premises held for sale	$	—		$	3,300
Transfer of available for sale securities to equity investments with adoption of ASU 2016-01	$	21,957		$	—
New commitments to fund affordable housing partnership investments	$	30,097		$	26,500

See accompanying Notes to Consolidated Financial Statements (Unaudited)

9

HOPE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Hope Bancorp, Inc.

Hope Bancorp, Inc. (“Hope Bancorp” on a parent-only basis and the “Company” on a consolidated basis), headquartered in Los Angeles, California, is the holding company for Bank of Hope (the “Bank”). As of September 30, 2018, the Bank operated branches in California, Washington, Texas, Illinois, Alabama, Georgia, Virginia, New Jersey, and New York, loan production offices in Colorado, Texas, Oregon, Washington, Georgia, Southern California, and Northern California, and a representative office in Seoul, South Korea. The Company is a corporation organized under the laws of the state of Delaware and a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

2. Basis of Presentation

The consolidated financial statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), except for the Consolidated Statement of Financial Condition as of December 31, 2017 which was from the audited financial statements included in the Company’s 2017 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations.

The consolidated financial statements include the accounts of Hope Bancorp and its wholly owned subsidiaries, principally Bank of Hope. All intercompany transactions and balances have been eliminated in consolidation. The Company has made all adjustments, that in the opinion of management, are necessary to fairly present the Company’s financial position at September 30, 2018 and December 31, 2017 and the results of operations for the three and nine months ended September 30, 2018 and 2017. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The results of operations for the interim periods are not necessarily indicative of results to be anticipated for the full year.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

These unaudited consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in the Company’s 2017 Annual Report on Form 10-K.

10

Pending Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Subsequently in July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2018-11, “Leases Topic 842, Targeted Improvements”, to provide additional clarification, implementation, and transition guidance on certain aspects of ASU 2016-02. ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02, ASU 2018-10, and ASU 2018-11 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for finance and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Under ASU 2018-11, an additional transition option was provided that would allow entities to not apply the new guidance in the comparative periods they present in their financial statements in the year of adoption. Under this optional transition method, entities will be allowed to continue using and presenting leases under ASC 840 for prior years comparative periods and then prospectively adopt ASC 842 on January 1, 2019, recognizing a cumulative-effect adjustment to the opening balance of retained earnings. The Company expects to elect the transition option provided in ASU 2018-11 and the modified retrospective approach will be applied on January 1, 2019. The Company also expects to elect certain relief options offered in ASU 2016-02 including the package of practical expedients, the option not to separate lease and non-lease components and instead to account for them as a single lease component, and the option not to recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). The Company estimated that there are approximately 100 operating leases that will be accounted for under ASU 2016-02 at the adoption date, and thus, will be recognized on the consolidated statements of condition as a right-of-use asset and a corresponding lease liability. In July 2018, the Company engaged a new software vendor to assist the Company with the administration and accounting of leases under ASU 2016-02. As of September 30, 2018, the Company has compiled a complete inventory of its leases which have been entered into the new lease accounting software. The preliminary evaluation of the impact of ASU 2016-02 indicates that adoption is expected to impact the Company’s consolidated statements of condition, along with the Company’s regulatory capital ratios. However, the Company does not expect the new guidance to have a material impact on the Company’s consolidated statements of income. The Company is currently assessing the actual expected impact of the new lease accounting guidance on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, also referred to as “CECL”. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. ASU 2016-13 becomes effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company has established a CECL committee to oversee the development and implementation of ASU 2016-13. The Company is collaborating with a third party advisory team and has completed a gap assessment, a full implementation road-map and a detailed project plan. The Company has also engaged a software vendor to assist the Company to build a model that is compliant with ASU 2016-13 by the effective date. Based on the Company’s initial assessment of the ASU 2016-13, the Company expects the new guidance will result in additional required allowance for loan losses which could potentially have a material impact on its consolidated financial statements and regulatory capital ratios.

11

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, “Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment.” ASU 2017-04 will amend and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the quantitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. ASU 2017-04 should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. ASU 2017-08 was issued to amend the amortization period for certain callable debt securities held at a premium. ASU 2017-08 shortens the amortization period of premiums on certain purchased callable debt securities to the earliest call date. ASU 2017-08 affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). ASU 2017-08 does not impact securities purchased at a discount, which continue to be amortized to maturity. ASU 2017-08 is effective for annual period beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted in an interim period. If an entity chooses to adopt early, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The adoption of ASU 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting”. ASU 2018-07 expands the scope of Topic 718 (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services.  As ASU 2018-07 becomes effective, the accounting for share-based payments for nonemployees and employees will be substantially the same.  The ASU supersedes Subtopic 505-50, “Equity – Equity-Based Payments to Non-Employees”. ASU 2018-07 is effective for annual period beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.  The adoption of ASU 2018-07 is not expected to have a material impact on the Company’s consolidated financial statements as the Company has historically not issued share-based payments to nonemployees for goods and services.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018-13 removes the disclosure requirement detailing the amount of and reasons for transfers between Level 1 and Level 2 and the valuation processes for Level 3 fair value measurements will be removed. In addition, ASU 2018-13 modifies the disclosure requirement for investments in certain entities that calculate net asset value. Lastly, ASU 2018-13 adds a disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. ASU 2018-13 is effective annual periods in fiscal years beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted upon the issuance of ASU 2018-13. The removed and modified disclosures will be adopted on a retrospective basis, and the new disclosures will be adopted on a prospective basis. The adoption of ASU 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”. ASU 2018-15 requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted, including adoption in any interim period. The adoption of ASU 2018-15 is not expected to have a material impact on the Company’s consolidated financial statements.

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3.    Stock-Based Compensation

The Company has a stock-based incentive plan (the “2016 Plan”) to award equity as a form of compensation. The 2016 Plan was approved by the Company’s stockholders on September 1, 2016. The 2016 Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock, performance shares, and performance units (sometimes referred to individually or collectively as “awards”) to non-employee directors, employees, and potentially consultants of the Company. Stock options may be either incentive stock options (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”).

The 2016 Plan gives the Company flexibility to (i) attract and retain qualified non-employee directors, executives, other key employees, and consultants with appropriate equity-based awards to; (ii) motivate high levels of performance; (iii) recognize employee contributions to the Company’s success; and (iv) align the interests of the 2016 Plan participants with those of the Company’s stockholders. The plan initially had 2,400,000 shares available for grant to participants. The exercise price for shares under an ISO may not be less than 100% of fair market value on the date the award is granted under Code Section 422. Similarly, under the terms of the 2016 Plan, the exercise price for SARs and NQSOs may not be less than 100% of fair market value on the date of grant. Performance units are awarded to a participant at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). No minimum exercise price is prescribed for performance shares and restricted stock awarded under the 2016 Plan. All options not exercised generally expire 10 years after the date of grant.

ISOs, SARs and NQSOs have vesting periods of three to five years and have 10-year contractual terms. Restricted stock, performance shares, and performance units are granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recognized over the vesting period.

The Company has another stock-based incentive plan, the 2007 Equity Incentive Plan (“2007 Plan”), which was approved by stockholders in May 2007. Under the terms of this plan, awards cannot be granted under the plan more than ten years after the plan adoption date. Therefore, subsequent to May 2017, equity awards were not issued from this plan.

Under the 2016 Plan, 1,110,696 shares were available for future grants as of September 30, 2018.

The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2016 Plan. With the exception of the shares underlying stock options and restricted stock awards, the board of directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.

The following is a summary of stock option activity under the 2016 Plan for the nine months ended September 30,2018:

	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (Dollars in thousands)
Outstanding - January 1, 2018	1,075,423		$	15.06
Granted	—		—
Exercised	(57,198	)	7.88
Expired	(5,546	)	16.62
Forfeited	(24,000	)	17.18
Outstanding - September 30, 2018	988,679		$	15.41	6.69	$	1,335
Options exercisable - September 30, 2018	783,669		$	15.01	6.41	$	1,328

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The following is a summary of restricted stock and performance unit activity under the 2016 Plan for the nine months ended September 30,2018:

	Number of Shares		Weighted- Average Grant Date Fair Value
Outstanding - January 1, 2018	379,419		$	16.42
Granted	273,725		16.27
Vested	(149,287	)	16.51
Forfeited	(20,666	)	16.04
Outstanding - September 30, 2018	483,191		$	16.39

The total fair value of restricted stock and performance units vested for the nine months ended September 30, 2018 and 2017 was $2.7 million and $2.6 million, respectively.

On August 21, 2017, the Company adopted the Hope Employee Stock Purchase Plan (“ESPP”). The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions which build up between the offering date and the purchase date. At the purchase date, the Company uses the accumulated funds to purchase shares in the Company on behalf of the participating employees at a 10% discount to the closing price of the Company’s common shares. The closing price is the lower of either the closing price on the first day of the offering period or on the closing price on the purchase date. The dollar amount of common shares purchased under the ESPP must not exceed 20% of the participating employee’s base salary, subject to a cap of $25 thousand in stock value based on the grant date. The ESPP is considered compensatory under GAAP and compensation expense for the ESPP is recognized as part of the Company’s stock-based compensation expenses. The compensation expense for ESPP during the three months ended September 30, 2018 and 2017 was $39 thousand and $18 thousand, respectively. The compensation expense for ESPP during the nine months ended September 30, 2018 and 2017 was $124 thousand and $18 thousand, respectively.

The amount charged against income related to stock-based payment arrangements, including ESPP, was $1.1 million and $792 thousand for the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, $2.9 million and $2.3 million, respectively, of stock-based payment arrangements were charged against income. The income tax benefit recognized was approximately $264 thousand and $304 thousand for the three months ended September 30, 2018 and 2017, respectively. The income tax benefit recognized for the nine months ended September 30, 2018 and 2017, was approximately $747 thousand and $886 thousand, respectively.

At September 30, 2018, the unrecognized compensation expense related to non-vested stock option grants was $551 thousand which is expected to be recognized over a weighted average vesting period of 2.75 years. Unrecognized compensation expense related to non-vested restricted stock and performance units was $5.3 million which is expected to be recognized over a weighted average vesting period of 2.64 years.

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4.    Earnings Per Share (“EPS”)

Basic EPS does not reflect the possibility of dilution that could result from the issuance of additional shares of common stock upon exercise or conversion of outstanding equity awards or convertible notes and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options, convertible notes, or other contracts to issue common stock were exercised or converted to common stock that would then share in earnings. For the three months ended September 30, 2018 and 2017, stock options and restricted shares awards for 306,410 and 762,833 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were anti-dilutive. For the nine months ended September 30, 2018 and 2017, stock options and restricted shares awards for 296,357 and 484,426 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were anti-dilutive. Additionally, warrants issued pursuant to the Company’s participation in the U.S. Treasury’s TARP Capital Purchase Plan, to purchase 20,845 shares and 20,238 shares of common stock were anti-dilutive and excluded for the three and nine months ended September 30, 2018 and 2017, respectively.

During the second quarter of 2018, the Company issued $217.5 million in convertible notes. The convertible notes can be converted to the Company’s shares of common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (See footnote 10 “Subordinated Debentures and Convertible Notes” for additional information regarding convertible notes issued). For the three and nine months ended September 30, 2018, shares related to the convertible notes issued were not included in the Company’s diluted EPS calculation. In accordance with the terms of the convertible notes and settlement options available to the Company, no shares would have been delivered to investors of the convertible notes upon assumed conversion based on the Company’s common stock price during the three and nine months ended September 30, 2018.

On April 26, 2018, the Company’s Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $100.0 million in common stock. During the nine months ended September 30, 2018, the Company repurchased 5,565,696 shares of common stock totaling $100.0 million which were recorded as treasury stock and excluded from weighted average shares and weighted average diluted shares for the three and nine months ended September 30, 2018. On September 20, 2018, the Company’s Board of Directors approved another share repurchase program that authorized the Company to repurchase up to $50.0 million in common stock. There were no shares repurchased as part of the program as of September 30, 2018.

The following tables show the computation of basic and diluted EPS for the three and nine months ended September 30, 2018 and 2017.

	Three Months Ended September 30,
	2018					2017
	Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share
	(Dollars in thousands, except share and per share data)
Basic EPS - common stock	$	46,378	130,268,992	$	0.36	$	44,564	135,382,457	$	0.33
Effect of dilutive securities:
Stock options, restricted stock,    and ESPP shares			256,482					248,455
Diluted EPS - common stock	$	46,378	130,525,474	$	0.36	$	44,564	135,630,912	$	0.33

	Nine Months Ended September 30,
	2018					2017
	Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share		Net Income (Numerator)		Weighted-Average Shares (Denominator)	Earnings Per Share
	(In thousands, except share and per share data)
Basic EPS - common stock	$	145,140	132,930,437	$	1.09	$	121,461	135,296,332	$	0.90
Effect of dilutive securities:
Stock options, restricted stock,    and ESPP shares			283,632					365,633
Diluted EPS - common stock	$	145,140	133,214,069	$	1.09	$	121,461	135,661,965	$	0.90

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5.    Equity Investments

On January 1, 2018, the Company adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. As a result of the adoption, the Company reclassified $469 thousand in net unrealized losses included in other comprehensive income and deferred tax assets to retained earnings on January 1, 2018. Equity investments with readily determinable fair value at September 30, 2018, consisted of mutual funds and equity stock in other institutions in the amount of $21.3 million and $2.6 million, respectively and is included in “Interest bearing deposits in other financial institutions and other investments” on the consolidated statements of financial condition.

In accordance with ASU 2016-01, the change in fair value for equity investments with readily determinable fair value for the three and nine months ended September 30, 2018 were recorded as other noninterest income as summarized in the table below:

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
	(Dollars in thousands)
Net change in fair value recorded during the period on equity investment securities	$	(1,617	)	$	1,901
Net change in fair value recorded on equity investment securities sold during the period	—			—
Net change in fair value on equity investment securities at end of period	$	(1,617	)	$	1,901

At September 30, 2018, the Company also had equity investments without readily determinable fair value which are carried at cost less any determined impairment. The balance of these investments is adjusted for changes in subsequent observable prices. At September 30, 2018, the total balance of equity investments without readily determinable fair values included in “Interest bearing deposits in other financial institutions and other investments” on the consolidated statements of financial condition was $26.3 million, consisting of $370 thousand in correspondent bank stock, $1.0 million in Community Development Financial Institutions investments, and $24.9 million in Community Reinvestment Act investments. There was no impairment or subsequent observable price changes for investments without readily determinable fair values for the three and nine months ended September 30, 2018.

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6.    Securities Available for Sale

The following is a summary of securities available for sale at the dates indicated:

	At September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Debt securities:
U.S. Government agency and U.S. Government sponsored enterprises:
Collateralized mortgage obligations	$	948,536	$	10	$	(36,665	)	$	911,881
Mortgage-backed securities:
Residential	431,790		9		(19,091		)	412,708
Commercial	467,761		—		(19,435		)	448,326
Corporate securities	5,000		—		(651		)	4,349
Municipal securities	79,330		174		(2,518		)	76,986
Total investment securities available for sale	$	1,932,417	$	193	$	(78,360	)	$	1,854,250
	At December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Debt securities:
U.S. Government agency and U.S. Government sponsored enterprises:
Collateralized mortgage obligations	$	856,193	$	58	$	(17,542	)	$	838,709
Mortgage-backed securities:
Residential	477,676		521		(6,983		)	471,214
Commercial	308,046		—		(6,681		)	301,365
Corporate securities	4,997		—		(522		)	4,475
Municipal securities	82,542		870		(875		)	82,537
Total debt securities	1,729,454		1,449		(32,603		)	1,698,300
Mutual funds	22,425		17		(485		)	21,957
Total investment securities available for sale	$	1,751,879	$	1,466	$	(33,088	)	$	1,720,257

As of September 30, 2018 and December 31, 2017, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

At September 30, 2018 and December 31, 2017, $55.5 million and $19.0 million, respectively, in unrealized losses on securities available for sale net of taxes were included in accumulated other comprehensive loss. Also included in accumulated other comprehensive loss at September 30, 2018 and December 31, 2017, were unrealized losses on interest only strip net of taxes of $48 thousand and $41 thousand, respectively. There were no reclassifications out of accumulated other comprehensive loss into earnings during the three and nine months ended September 30, 2018 or 2017.

On January 1, 2018, the Company adopted ASU 2016-01 “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. As a result of the adoption of ASU 2016-01, the Company no longer accounts for mutual funds as available-for-sale securities and accounts for these investments as equity investments with readily determinable fair value with changes in fair value recorded through earnings. In accordance with ASU 2016-01, the Company reclassified $469 thousand in net unrealized losses included in other comprehensive income and deferred tax assets to retained earnings on January 1, 2018. The subsequent changes to fair value for mutual funds were recorded as other noninterest income for the three and nine months ended September 30, 2018.

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The amortized cost and estimated fair value of investment securities at September 30, 2018, by contractual maturity, is presented in the table below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Collateralized mortgage obligations and mortgage-backed securities are not due at a single maturity date and their total balances are shown separately.

	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Available for sale:
Due within one year	$	751	$	766
Due after one year through five years	17,393		17,374
Due after five years through ten years	28,861		28,379
Due after ten years	37,325		34,816
U.S. Government agency and U.S. Government sponsored enterprises:
Collateralized mortgage obligations	948,536		911,881
Mortgage-backed securities:
Residential	431,790		412,708
Commercial	467,761		448,326
Total	$	1,932,417	$	1,854,250

Securities with carrying values of approximately $353.8 million and $359.2 million at September 30, 2018 and December 31, 2017, respectively, were pledged to secure public deposits, for various borrowings, and for other purposes as required or permitted by law.

The following tables show the Company’s investments’ gross unrealized losses and estimated fair values, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position as of the dates indicated.    

	As of September 30, 2018
	Less than 12 months						12 months or longer						Total
Description of Securities	Number  of Securities	Fair  Value		Gross Unrealized Losses			Number  of Securities	Fair  Value		Gross Unrealized Losses			Number  of Securities	Fair  Value		Gross Unrealized Losses
	(Dollars in thousands)
Collateralized mortgage obligations*	20	$	209,673	$	(1,418	)	86	$	700,789	$	(35,247	)	106	$	910,462	$	(36,665	)
Mortgage-backed securities:
Residential*	11	63,627		(1,280		)	41	347,316		(17,811		)	52	410,943		(19,091		)
Commercial*	18	195,427		(4,712		)	20	242,896		(14,723		)	38	438,323		(19,435		)
Corporate securities	—	—		—			1	4,349		(651		)	1	4,349		(651		)
Municipal securities	71	42,623		(753		)	5	20,713		(1,765		)	76	63,336		(2,518		)
Total	120	$	511,350	$	(8,163	)	153	$	1,316,063	$	(70,197	)	273	$	1,827,413	$	(78,360	)

__________________________________    

* Investments in U.S. Government agency and U.S. Government sponsored enterprises

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	As of December 31, 2017
	Less than 12 months						12 months or longer						Total
Description of Securities	Number  of Securities	Fair  Value		Gross Unrealized Losses			Number  of Securities	Fair  Value		Gross Unrealized Losses			Number  of Securities	Fair  Value		Gross Unrealized Losses
	(Dollars in thousands)
Collateralized mortgage obligations*	38	$	425,198	$	(5,954	)	53	$	408,526	$	(11,588	)	91	$	833,724	$	(17,542	)
Mortgage-backed securities:
Residential*	20	195,086		(1,282		)	23	230,616		(5,701		)	43	425,702		(6,983		)
Commercial*	16	186,357		(1,614		)	8	115,008		(5,067		)	24	301,365		(6,681		)
Corporate securities	1	4,475		(522		)	—	—		—			1	4,475		(522		)
Municipal securities	18	9,295		(69		)	3	22,144		(806		)	21	31,439		(875		)
Mutual funds	1	8,899		(101		)	3	11,579		(384		)	4	20,478		(485		)
Total	94	$	829,310	$	(9,542	)	90	$	787,873	$	(23,546	)	184	$	1,617,183	$	(33,088	)

__________________________________

* Investments in U.S. Government agency and U.S. Government sponsored enterprises

The Company evaluates securities for other-than-temporary-impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair values of the securities have been less than the cost of the securities, management’s intention to sell, and/or whether it is more likely than not that management will be required to sell the security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, the Company considers, among other considerations, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

The Company had collateralized mortgage obligations, mortgage backed securities, corporate securities, and municipal securities that were in a continuous unrealized loss position for twelve months or longer as of September 30, 2018. The collateralized mortgage obligations in a continuous loss position for twelve months or longer had unrealized losses of $35.2 million at September 30, 2018, and total mortgage backed securities in a continuous loss position for twelve months or longer had total unrealized losses of $32.5 million. These securities were issued by U.S. Government agency and U.S. Government sponsored enterprises and have high credit ratings of “AA” grade or better. Interest on U.S. Government agencies and U.S. Government sponsored enterprise investments have been paid as agreed, and management believes this will continue in the future and that the securities will be repaid in full as scheduled. Corporate securities that were in a continuous loss position for twelve months or longer had unrealized losses of $651 thousand at September 30, 2018. Municipal securities that were in a continuous loss position for twelve months or longer had unrealized losses of $1.8 million at September 30, 2018. The market value declines for these securities were primarily due to movements in interest rates and are not reflective of management’s expectations of the Company’s ability to fully recover these investments, which may be at maturity. For these reasons, no OTTI was recognized on U.S. Government sponsored collateralized mortgage obligations and mortgage backed securities, corporate securities, and municipal securities that were in an unrealized loss position at September 30, 2018.

The Company considers the losses on the investments in unrealized loss positions at September 30, 2018 to be temporary based on: 1) the likelihood of recovery; 2) the information relative to the extent and duration of the decline in market value; and 3) the Company’s intention not to sell, and management’s determination that it is more likely than not that the Company will not be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.

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7.    Loans Receivable and Allowance for Loan Losses

The following is a summary of loans receivable by major category:

	September 30, 2018			December 31, 2017
Loan portfolio composition	(Dollars in thousands)
Real estate loans:
Residential	$	49,602		$	49,774
Commercial	8,307,213			8,142,036
Construction	283,042			316,412
Total real estate loans	8,639,857			8,508,222
Commercial business	2,126,608			1,780,869
Trade finance	191,605			166,664
Consumer and other	969,835			647,102
Total loans outstanding	11,927,905			11,102,857
Deferred loan fees, net	(723		)	(282		)
Loans receivable	11,927,182			11,102,575
Allowance for loan losses	(90,629		)	(84,541		)
Loans receivable, net of allowance for loan losses	$	11,836,553		$	11,018,034

The loan portfolio is made up of four segments: real estate loans, commercial business, trade finance, and consumer and other. Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. Commercial business loans are loans provided to business for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions and other business related financing needs. Trade finance loans generally serves businesses involved in international trade activities. Consumer and other loans consist mostly of single family residential mortgage loans but also includes home equity, credit cards, and other personal loans.

The four segments are further segregated between loans accounted for under the amortized cost method (“Legacy Loans”), and previously acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses (“Acquired Loans”). Acquired Loans are further segregated between purchased credit impaired loans (loans with credit deterioration on the date of acquisition and accounted for under ASC 310-30, or “PCI loans”), and Acquired Performing Loans (loans that were pass graded on the acquisition date and the fair value adjustment is amortized over the contractual life under ASC 310-20, or “non-PCI loans”).

The following table presents changes in the accretable discount on PCI loans for the three and nine months ended September 30, 2018 and 2017:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Balance at beginning of period	$	53,573		$	53,657		$	55,002		$	43,611
Accretion	(5,239		)	(5,815		)	(16,970		)	(16,375		)
Reclassification from nonaccretable difference	7,889			6,696			18,191			27,302
Balance at end of period	$	56,223		$	54,538		$	56,223		$	54,538

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of PCI loans is considered the “accretable yield.” The accretable yield is measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. The accretable yield will change from period to period due to the following: 1) estimates of the remaining life of acquired loans will affect the amount of future interest income; 2) indices for variable rates of interest on PCI loans may change; and 3) estimates of the amount of the contractual principal and interest that will not be collected (nonaccretable difference) may change.

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The following tables detail the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2018 and 2017:

	Legacy Loans												Acquired Loans												Total
	Real Estate			Commercial Business			Trade Finance			Consumer and Other			Real Estate			Commercial Business			Trade Finance			Consumer and Other
	(Dollars in thousands)
Three Months Ended September 30, 2018
Balance, beginning of period	$	48,235		$	22,031		$	983		$	4,799		$	12,816		$	991		$	3		$	23		$	89,881
Provision (credit) for loan losses	5,537			(856		)	(159		)	1,036			1,744			28			(3		)	(27		)	7,300
Loans charged off	(5,854		)	(292		)	—			(343		)	(191		)	(174		)	—			(13		)	(6,867		)
Recoveries of charge offs	41			188			17			1			—			32			—			36			315
Balance, end of period	$	47,959		$	21,071		$	841		$	5,493		$	14,369		$	877		$	—		$	19		$	90,629
Nine Months Ended September 30, 2018
Balance, beginning of period	$	45,360		$	17,228		$	1,674		$	3,385		$	13,322		$	3,527		$	42		$	3		$	84,541
Provision (credit) for loan losses	7,792			2,920			(874		)	2,999			1,430			(2,114		)	(42		)	(11		)	12,100
Loans charged off	(6,061		)	(1,080		)	—			(919		)	(385		)	(740		)	—			(13		)	(9,198		)
Recoveries of charge offs	868			2,003			41			28			2			204			—			40			3,186
Balance, end of period	$	47,959		$	21,071		$	841		$	5,493		$	14,369		$	877		$	—		$	19		$	90,629

	Legacy Loans												Acquired Loans											Total
	Real Estate			Commercial Business			Trade Finance			Consumer and Other			Real Estate			Commercial Business			Trade Finance		Consumer and Other
	(Dollars in thousands)
Three Months Ended September 30, 2017
Balance, beginning of period	$	40,478		$	21,495		$	1,000		$	2,282		$	13,411		$	1,291		$	106	$	11		$	80,074
Provision (credit) for loan losses	3,664			1,499			418			664			(1,312		)	395			56		16			5,400
Loans charged off	(175		)	(3,870		)	—			(218		)	(162		)	(471		)	—		(17		)	(4,913		)
Recoveries of charge offs	23			3,020			2			—			—			25			—		2			3,072
Balance, end of period	$	43,990		$	22,144		$	1,420		$	2,728		$	11,937		$	1,240		$	162	$	12		$	83,633
Nine Months Ended September 30, 2017
Balance, beginning of period	$	38,956		$	23,430		$	1,897		$	2,116		$	12,791		$	117		$	—	$	36		$	79,343
Provision (credit) for loan losses	7,174			2,356			1,621			1,348			(406		)	1,517			162		(12		)	13,760
Loans charged off	(2,221		)	(7,485		)	(2,104		)	(738		)	(479		)	(596		)	—		(17		)	(13,640		)
Recoveries of charge offs	81			3,843			6			2			31			202			—		5			4,170
Balance, end of period	$	43,990		$	22,144		$	1,420		$	2,728		$	11,937		$